1. BCG MATRIX AND General Electric (GE) Matrix
ASHIKA SRIPATHI
LECTURER-MBA DEPARTMENT
CMRIT

2. Roadmap

3. Strategic Planning
It is the management task concerned with the growth and future of business enterprise.
It provides the route map for the firm and helps to take decision in the future with a greater awareness

4. Market Attractiveness
BCG & GE Matrix
Relative Position
(Market Share)
Business Strength
Market Growth
Market Attractiveness

5. BCG MATRIX

6. The BCG matrix ( B.C.G. analysis, BCG-matrix, Boston Box, Boston Matrix, Boston Consulting Group analysis) is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1970 to help corporations with analyzing their business units or product lines. This helps the company allocate resources and is used as an analytical tool in brand marketing, product management, strategic management, and portfolio analysis

7. To use the chart, analysts plot a scatter graph to rank the business units (or products) on the basis of their relative market shares and growth rates.

8. Cash cows are units with high market share in a slow-growing industry
Cash cows are units with high market share in a slow-growing industry. These units typically generate cash in excess of the amount of cash needed to maintain the business. They are regarded as staid and boring, in a "mature" market, and every corporation would be thrilled to own as many as possible. They are to be "milked" continuously with as little investment as possible, since such investment would be wasted in an industry with low growth.

9. Dogs, or more charitably called pets, are units with low market share in a mature, slow-growing industry. These units typically "break even", generating barely enough cash to maintain the business's market share. Though owning a break-even unit provides the social benefit of providing jobs and possible synergies that assist other business units, from an accounting point of view such a unit is worthless, not generating cash for the company. They depress a profitable company's return on assets ratio, used by many investors to judge how well a company is being managed. Dogs, it is thought, should be sold off.

10. Question marks (also known as problem child) are growing rapidly and thus consume large amounts of cash, but because they have low market shares they do not generate much cash. The result is a large net cash consumption. A question mark has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. If the question mark does not succeed in becoming the market leader, then after perhaps years of cash consumption it will degenerate into a dog when the market growth declines. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share

11. Stars are units with a high market share in a fast-growing industry
Stars are units with a high market share in a fast-growing industry. The hope is that stars become the next cash cows. Sustaining the business unit's market leadership may require extra cash, but this is worthwhile if that's what it takes for the unit to remain a leader. When growth slows, stars become cash cows if they have been able to maintain their category leadership, or they move from brief stardom to dogdom.[

12. As a particular industry matures and its growth slows, all business units become either cash cows or dogs. The natural cycle for most business units is that they start as question marks, then turn into stars. Eventually the market stops growing thus the business unit becomes a cash cow. At the end of the cycle the cash cow turns into a dog.

13. The overall goal of this ranking was to help corporate analysts decide which of their business units to fund, and how much; and which units to sell. Managers were supposed to gain perspective from this analysis that allowed them to plan with confidence to use money generated by the cash cows to fund the stars and, possibly, the question marks. As the BCG stated in 1970:

14. Only a diversified company with a balanced portfolio can use its strengths to truly capitalize on its growth opportunities. The balanced portfolio has: stars whose high share and high growth assure the future;
cash cows that supply funds for that future growth; and
question marks to be converted into stars with the added funds.

15. For each product or service, the 'area' of the circle represents the value of its sales.
The BCG Matrix thus offers a very useful 'map' of the organization's product (or service) strengths and weaknesses, at least in terms of current profitability, as well as the likely cashflows

16. Relative market share
This indicates likely cash generation, because the higher the share the more cash will be generated.
As a result of 'economies of scale' (a basic assumption of the BCG Matrix), it is assumed that these earnings will grow faster the higher the share.
The exact measure is the brand's share relative to its largest competitor. Thus, if the brand had a share of 20 percent, and the largest competitor had the same, the ratio would be 1:1. If the largest competitor had a share of 60 percent; however, the ratio would be 1:3, implying that the organization's brand was in a relatively weak position. If the largest competitor only had a share of 5 percent, the ratio would be 4:1, implying that the brand owned was in a relatively strong position, which might be reflected in profits and cash flows. If this technique is used in practice, this scale is logarithmic, not linear

17. Market growth rate
Rapidly growing in rapidly growing markets, are what organizations strive for
the penalty is that they are usually net cash users - they require investment.
The reason for this is often because the growth is being 'bought' by the high investment, in the reasonable expectation that a high market share will eventually turn into a sound investment in future profits.
The theory behind the matrix assumes, therefore, that a higher growth rate is indicative of accompanying demands on investment.

18. Major problems
'Minority applicability'. The cashflow techniques are only applicable to a very limited number of markets (where growth is relatively high, and a definite pattern of product life-cycles can be observed, such as that of ethical pharmaceuticals). In the majority of markets, use may give misleading results.
Market growth rate is only one factor in industry attractiveness, and relative market share is only one factor in competitive advantage. The growth-share matrix overlooks many other factors in these two important determinants of profitability.
The framework assumes that each business unit is independent of the others. In some cases, a business unit that is a "dog" may be helping other business units gain a competitive advantage.
The matrix depends heavily upon the breadth of the definition of the market. A business unit may dominate its small niche, but have very low market share in the overall industry. In such a case, the definition of the market can make the difference between a dog and a cash cow.

20. About GE Matrix Developed by McKinsey & Company in 1970’s.
GE is a model to perform business portfolio analysis on the SBU’s.
GE is rated in terms of ‘Market Attractiveness & Business Strength’
It is an Enlarged & Sophisticated version of BCG.

21. Market Attractiveness
Classification
Business Strength
Strong
Medium
Weak
5.00
High
3.67
Medium
Market Attractiveness
2.33
Low
5.00
3.67
2.33
1.00

22. Market Attractiveness
Annual market growth rate
Overall market size
Historical profit margin
Current size of market
Market structure
Market rivalry
Demand variability
Global opportunities

23. Business Strength Current market share Brand image Brand equity
Production capacity
Corporate image
Profit margins relative to competitors
R & D performance
Managerial personal
Promotional effectiveness

24. Strategies Protect Position Invest to grow
Effort on maintaining strength
Invest to Build
Challenge for leadership
Build selectively on strength
Build Selectively
Invest in most attractive segment
Build up ability to counter competition
Emphasize profitability by raising productivity

25. Strategies Build Selectively Protect & Refocus
Manage for current earning
Defend strength
Selectivity for Earning
Protect existing program
Investments in profitable segments
Build Selectively
Specialize around limited strength
Seek ways to overcome weaknesses
Withdraw if indication of sustainable
growth are lacking

26. Strategies Limited Expansion for Harvest Look for ways to expand
without high risk
Manage for Earnings
Protect position in profitable segment
Upgrade product line
Minimize investment
Harvest
Sell at time that will maximize cash value
Cut fixed costs and avoid investment
meanwhile

27. Factors Underlying Market Attractiveness
Weight
Rating
(1 –5)
Value =
(Weight * Rating)
Resource availability
0.20
2.5
0.5
Overall market size
0.15 3
0.45
Annual Market growth rate
0.6
Profitability
Competitive intensity
0.10
0.25
Technological requirements
Total
1.0
2.75

28. Each factor is assigned a weighting that is appropriate for the industry. The industry attractiveness then is calculated as follows:
Industry attractiveness    =  
 factor value1   x   factor weighting1
 + 
 factor value2   x   factor weighting2
. . .  
 factor valueN   x   factor weightingN

29. Plotting the Information
Each business unit can be portrayed as a circle plotted on the matrix, with the information conveyed as follows:
Market size is represented by the size of the circle.
Market share is shown by using the circle as a pie chart.
The expected future position of the circle is portrayed by means of an arrow.
The following is an example of such a representation:

30. The shading of the above circle indicates a 38% market share for the strategic business unit. The arrow in the upward left direction indicates that the business unit is projected to gain strength relative to competitors, and that the business unit is in an industry that is projected to become more attractive. The tip of the arrow indicates the future position of the center point of the circle.
The shading of the above circle indicates a 38% market share for the strategic business unit. The arrow in the upward left direction indicates that the business unit is projected to gain strength relative to competitors, and that the business unit is in an industry that is projected to become more attractive. The tip of the arrow indicates the future position of the center point of the circle.
The shading of the above circle indicates a 38% market share for the strategic business unit. The arrow in the upward left direction indicates that the business unit is projected to gain strength relative to competitors, and that the business unit is in an industry that is projected to become more attractive. The tip of the arrow indicates the future position of the center point of the circle.
The shading of the above circle indicates a 38% market share for the strategic business unit. The arrow in the upward left direction indicates that the business unit is projected to gain strength relative to competitors, and that the business unit is in an industry that is projected to become more attractive. The tip of the arrow indicates the future position of the center point of the circle.
The shading of the above circle indicates a 38% market share for the strategic business unit. The arrow in the upward left direction indicates that the business unit is projected to gain strength relative to competitors, and that the business unit is in an industry that is projected to become more attractive. The tip of the arrow indicates the future position of the center point of the circle.
The shading of the above circle indicates a 38% market share for the strategic business unit. The arrow in the upward left

31. The shading of the above circle indicates a 38% market share for the strategic business unit. The arrow in the upward left direction indicates that the business unit is projected to gain strength relative to competitors, and that the business unit is in an industry that is projected to become more attractive. The tip of the arrow indicates the future position of the center point of the circle.

32. Factors Underlying Market Strength
Weight
Rating
(1 –5)
Value =
(Weight * Rating)
Market share
0.15 5
0.75
New product development
0.10
3.5
0.35
Brand Image 4
0.40
Sales force 3
0.45
Pricing
Distribution capacity
4.5
Product quality
R&D Performance
Total
1.0
3.75

33. Market Attractiveness
Classification
Business Strength
Strong
Medium
Weak
5.00
High
3.67
Medium
Market Attractiveness
2.33
Low
5.00
3.67
2.33
1.00

34. Case Study

35. Market Attractiveness
Overview
High
Business Strengths
Low
High
Attractive
Moderate Attractive
Market Attractiveness
Unattractive
Low

36. Case Study of TATA IT (Information Technology) : TCS
Consumer Durable : Automobiles, Titan etc.
Textiles : Tata Fabrics, West Sides etc

37. Market Attractiveness
GE Matrix For TATA
Business Strengths
High
Low
High IT
Consumer Durables
Market Attractiveness
Textiles
Low

38. Market Attractiveness
BCG v/s GE
BCG GE
Market Growth
Market share
4 cell
Multi Products
Primary tools
Market Attractiveness
Market strength
9 cell
Multi Business Units
Secondary tools